JBS Vol 25. Num 1. 2023. Article 1 - Fighting Inflation in Bangladesh

Bangladesh experienced rising inflation in 2022 that has continued in 2023 even as global oil and other commodity prices have fallen considerably. The government blames this increase in inflation on global supply disruptions. This paper argues that while the origins of the initial inflationary pressures lay in the rise in global inflation resulting from supply disruptions due to Covid-19 and the Ukraine War, the inflationary surge in Bangladesh has been sustained by inappropriate policy responses. Instead of curbing domestic demand by increasing interest rates and reducing fiscal deficits, the government kept interest rates low to boost domestic credit, increased fiscal deficits, and enhanced its borrowings from the Bangladesh Bank to finance these deficits. Increased demand pressures further fueled domestic inflation even as global inflation fell.